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FT REPORT – NIGERIA: A critical role in world energy

By Dino Mahtani, Financial Times
Published: Jul 12, 2007

The production of liquefied natural gas is expected to become critical to world energy needs and Nigeria’s performance will be in the spotlight.

It holds the world’s seventh-largest reserves of natural gas and wants to more than double its exports of LNG to be near the top of world export tables within five years. Global demand for LNG is set to rise by 9 per cent a year during the next decade and any delays to Nigerian projects could have significant repercussions on international gas markets.

European countries are turning to importing gas from the likes of Nigeria as they increase efforts to diversify away from a reliance on Russia, which last year cut supplies to Ukraine. The US is also looking to secure steady supplies from the Atlantic basin, from where gas extracted by Nigeria is sourced.

Government officials say they expect gas revenues to rise to a level that is more than 50 per cent of oil earnings in the next few years, based on the completion of at least two LNG export terminals. The Nigeria Liquefied Natural Gas (NLNG) project at Bonny, Africa’s biggest capital project – which has built five segments or “trains” with plans to expand to eight – has already put Nigeria on the global map for LNG production.

But doubts are starting to surface as to whether Nigeria and its consortium partners will make good on their targets to complete two LNG plants, at Brass and Olokola, on time.

Peter Robinson, a senior gas executive in the local unit of Royal Dutch Shell – a joint venture partner in NLNG with Nigeria’s state-owned NNPC, Total and Eni – says “the scale, funding and security” aspects of LNG projects are what determine their success. Energy consultants say the big long-term problem is securing enough gas for the projects. Multinational executives say privately that the problems securing adequate supply stem partly from the government’s annual shortfall in meeting its commitments with joint venture partners to build up the gas-gathering networks that could feed the plants.

In what had an almost surreal feel to it, Olusegun Obasanjo, Nigeria’s outgoing president, nevertheless inaugurated both Brass and Olokola just days before he left office and before the projects had seen a final investment decision. The $10bn Olokola is being built by Shell, Chevron and BG in a joint venture with NNPC and is expected to deliver more than 20m tonnes a year by 2012. But the joint venture partners have been bogged down in negotiations with NNPC’s favoured contractor, chosen without a public tender, to reduce costs.

The project, to be based far from the core Niger Delta region, has also come under angry criticism by delta militants who say the project represents a huge kickback to Mr Obasanjo and Funso Kupolokun, NNPC director. Both men come from the same two states Olokola will straddle.

Brass – being put up by Total, Eni and ConocoPhillips in a joint venture with NNPC – is also expected to be built near the site of a crude oil export terminal that was disrupted this year when militants cut main pipelines feeding it. Industry observers say engineers have not been able to gain access to the site for months because of security fears.

 

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